Iron Condor Strategy: High-Probability Income Generation

Master the iron condor - one of the most popular options strategies for generating consistent monthly income. Learn setup, strike selection, management, and when to deploy this high-probability neutral strategy.

Defined Risk

65-70% Win Rate

Intermediate Level

TL;DR - Quick Summary

Iron Condor = Bull put spread + Bear call spread. Sell both sides out-of-the-money, collect premium from both. Profit if stock stays within your range (between short strikes). Best in high IV environments (IV rank >50). Target 10-20% ROI per trade with 65-70% win rate. Close at 50% profit to optimize returns. Max loss is capped by long options. Perfect for range-bound markets and generating monthly income.

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What is an Iron Condor?

An iron condor is a market-neutral options strategy that profits from low volatility and range-bound price action. It combines two credit spreads: a bull put spread below the current price and a bear call spread above it.

You're essentially betting that the stock will stay within a specific range until expiration. You collect premium from both the put and call sides, giving you a wide profit zone with defined maximum loss.

The Four Legs

Put Side (Bull Put Spread)

1. Sell OTM put (collect premium)
2. Buy further OTM put (protection)
Example: Stock at $100
Sell $95 put, Buy $90 put

Call Side (Bear Call Spread)

3. Sell OTM call (collect premium)
4. Buy further OTM call (protection)
Example: Stock at $100
Sell $105 call, Buy $110 call

Why Trade Iron Condors?

✓ High Probability: Win 65-70% of trades with proper management
✓ Defined Risk: Know your maximum loss before entering
✓ Double Premium: Collect from both put and call sides
✓ Time Decay Friendly: Positive Theta on both sides
✓ Capital Efficient: Lower margin than individual spreads
✓ Versatile: Works on stocks, ETFs, and indices

Real Example: Iron Condor on SPY

The Setup

Underlying: SPY at $450

IV Rank: 68 (high - ideal for selling)

Days to Expiration: 35 DTE

Market Condition: Range-bound

Spread Width: $5 on each side

Target Credit: 25-30% of width

Risk/Reward: Risk $850 to make $150

The Trade

Put Side:

Sell 1 SPY $440 put @ $2.10

Buy 1 SPY $435 put @ $1.30

Credit: $0.80 ($80)

Call Side:

Sell 1 SPY $460 call @ $1.90

Buy 1 SPY $465 call @ $1.20

Credit: $0.70 ($70)

Total Credit Collected: $1.50 ($150)

Risk/Reward Analysis

Max Profit: $150 (credit collected)

Max Loss: $350 ($5 width - $1.50 credit)

ROI if Win: 42.9% ($150/$350)

Breakevens: $438.50 and $461.50

Profit Range: $438.50 to $461.50

POP: ~68%

Greeks Profile

Delta: ~0 (neutral position)

Theta: +$15/day (time decay profit)

Vega: -25 (profit from IV drop)

Gamma: Near zero (low directional risk)

Best Case: SPY at $450 at Expiration

Stock stays exactly where it is. All four options expire worthless.

Result: Keep full $150 credit (42.9% return in 35 days)

Good Case: SPY Between $440-$460

Stock stays within your short strikes. All options expire worthless.

Result: Keep full $150 credit

Breakeven: SPY at $438.50 or $461.50

Stock moves to breakeven point. One side loses exactly what you collected.

Result: $0 profit/loss

Max Loss: SPY Below $435 or Above $465

Stock moves through both strikes on one side. Loss is capped by long option.

Result: -$350 max loss (only loses on one side, never both)

How to Construct an Iron Condor: Step-by-Step

Check IV Rank/Percentile

Iron condors work best when IV is elevated. Look for IV rank >50, ideally >70.

High IV = higher premiums = better credits. Use our IV guide to check

Select Expiration (30-45 DTE)

30-45 days to expiration provides optimal Theta decay while giving you time to manage.

• Too far out: Slower Theta decay
• Too close: Higher Gamma risk, less premium
• 30-45 DTE: Sweet spot for most traders

Determine Spread Width

Most traders use $5-10 wide spreads for stocks, $5-15 for indices:

• $5 wide: Higher ROI, less safety buffer
• $10 wide: More safety, lower ROI
• Target: Collect 25-33% of spread width

Select Short Strikes (Sell)

Choose your short strikes based on desired probability:

• 16 Delta: 84% POP (conservative)
• 20-25 Delta: 75-80% POP (balanced)
• 30 Delta: 70% POP (aggressive)

Buy Long Strikes (Protection)

Buy options at your spread width away from short strikes. These define your max loss.

Example: Short $100 put, spread width $5 → Buy $95 put

Enter as Iron Condor Order

Enter all four legs as a single iron condor order for best execution.

Most brokers support iron condor orders. This ensures all legs fill together at your target credit.

Iron Condor Strike Selection Guide

Approach	Short Strike Delta	POP	Premium	Best For
Conservative	10-16 Delta	84-90%	Low ($0.80-$1.20)	Beginners, small accounts
Balanced	20-25 Delta	75-80%	Medium ($1.20-$1.80)	Most traders (recommended)
Aggressive	30-35 Delta	65-70%	High ($1.80-$2.50)	Experienced, high risk tolerance

Recommended Setup

Most profitable long-term: 20-25 Delta short strikes, $5-10 wide spreads on indices like SPY.

This gives you 75-80% win rate with meaningful premium. Close at 50% profit to boost win rate to 85%+ and maximize annual returns. Target collecting $1.50-$2.00 per iron condor on $10 wide spreads.

Managing Iron Condors

Good management is the difference between profitable iron condor trading and consistent losses. Here's how to manage effectively:

Profit-Taking Rules

✓ Close at 50% profit: Research shows this is optimal. You capture 50% in ~40% of time
✓ Close at 7 DTE: Even if not at 50% profit - risk no longer worth reward
✓ Close after big IV drop: If IV crashes (like post-earnings), take profit early
✓ Close both sides together: Don't leg out - close entire iron condor as one order

When Position Is Tested

1. Don't panic: Stock touching short strike is normal - it's within your plan
2. Let it work: If >14 DTE, give position room to work - price often reverses
3. Roll tested side: If breached with time left, roll out 21-30 days for credit
4. Close if losing 2-3x credit: Don't hold losers hoping for recovery

Adjustment Strategies

1. Roll Tested Side Out

Buy back tested spread, sell same strikes 21-30 days further out for credit

Best when: You still believe price will reverse, plenty of time value left

2. Roll Tested Side Out & Out

Buy back tested spread, sell further OTM strikes with more time for credit

Best when: Stock has strong momentum, need more breathing room

3. Close Entire Position

Take the loss and move on - accept you were wrong about range

Best when: Losing 2-3x credit, market conditions changed dramatically

When to Trade Iron Condors

Best Market Conditions

✓ High IV environment: IV rank >50, ideally >70 for fat premiums
✓ Range-bound markets: Stock trading sideways in defined channel
✓ After big moves: Post-earnings, post-crash when IV is elevated but volatility declining
✓ No major catalysts: No earnings, Fed meetings, or major events during trade
✓ Index ETFs: SPY, IWM, QQQ - more predictable, less gap risk

When to Avoid

✗ Low IV environment: IV rank <30 - premiums too small to make it worthwhile
✗ Strong trends: Stock in persistent uptrend or downtrend - price will breach strikes
✗ Before earnings: Gap risk too high, IV crush unpredictable
✗ Low liquidity stocks: Wide bid-ask spreads make entry/exit expensive
✗ Volatile individual stocks: High gap risk - better for indices

Best Underlyings for Iron Condors

Top Tier (Best)

SPY: S&P 500 ETF - most liquid, tight spreads
IWM: Russell 2000 - higher IV, better premiums
QQQ: Nasdaq 100 - tech exposure, good liquidity
SPX: Cash-settled, tax advantages, expensive

Good (Intermediate)

DIA: Dow Jones ETF
EEM: Emerging Markets
GLD: Gold ETF
TLT: Treasury Bonds

Proceed with Caution

AAPL, MSFT: Mega-cap stocks - OK but watch earnings
TSLA: High premiums but very volatile
Small caps: Higher gap risk

Iron Condor Risk Management

Critical Rules

Never risk more than 2-5% of account per iron condor

If max loss is $500, need $10,000+ account. Most pros risk 1-2% per trade

Diversify across time and underlyings

Don't put 5 iron condors on SPY expiring same day. Spread across weeks and tickers

Close at 50% profit religiously

Don't get greedy trying to capture last 50%. Take profit and redeploy capital

Have a max loss limit

Exit if losing 2-3x the credit collected. Don't hope and pray for recovery

Track win rate and adjust

If winning <60%, move to lower probability strikes. If winning >80%, can be more aggressive

Calculate Your Iron Condors

Use our free iron condor calculator to see profit zones, breakevens, max profit/loss, and all Greeks for any iron condor.

Try Iron Condor Calculator → Build SPY Iron Condor

Frequently Asked Questions

What is an iron condor strategy?

An iron condor is a neutral options strategy combining a bull put spread and bear call spread. You sell OTM options on both sides and buy further OTM options for protection. You profit if the stock stays within your short strikes, with defined maximum risk and high probability of profit.

How much money can you make with iron condors?

Typical returns are 10-20% of capital at risk per trade. With 65-70% win rate and proper management, monthly returns of 5-8% on deployed capital are realistic. Trading 2-3 iron condors per month can generate consistent income.

What is the maximum loss on an iron condor?

Maximum loss = (Spread width - Net credit) × 100. Example: $5 wide spreads, $1.50 credit = ($5 - $1.50) × 100 = $350 max loss. You'll only lose on one side (puts or calls), never both, even if the stock makes a huge move.

When should you trade iron condors?

Best when IV rank is above 50 (ideally above 70), the stock is range-bound or consolidating, and there are no major catalysts during your trade duration. Avoid during low IV periods or before earnings announcements.

How do you manage an iron condor?

Close at 50% of max profit for optimal returns. If a side is tested, either let it work (if >14 DTE), roll out in time, or close if losing 2-3x the credit. Never hold to expiration if either side is threatened.

What is the ideal iron condor width?

Most traders use $5-10 wide spreads. Target collecting 25-33% of spread width in premium. Example: $10 wide spreads should collect $2.50-$3.30. Wider spreads provide more safety but lower ROI.